Shell: How is the implementation of the One Body, Three Wings strategy progressing?
Here is a summary of the conference call from Beike. For a review of the earnings report, please refer to " Beike: A "Plum Blossom" in the Real Estate Winter?"
1. Management Remarks
1. Store Network: In September, approximately 1,300 new stores were added nationwide (excluding Beijing and Shanghai). In the third quarter, the contract sales of home improvement business reached RMB 3.26 billion, a YoY increase of 66%. The number of leased property management service contracts increased from 50,000 in Q3 2022 to 160,000 in Q3 this year.
2. Housing Transaction Services: In the third quarter, both the existing housing and new housing markets nationwide experienced QoQ and YoY declines, due to significant quarterly differences compared to previous years. The GTV of existing housing only grew by 2.2% YoY. The revenue from existing transaction services decreased by 11.9% YoY to RMB 6.3 billion.
3. Revenue from Existing Housing: On September 26th, before the effective date of the adjustment of Lianjia's commission rate in Beijing, suppliers and sellers paid 1% of the total transaction volume for approximately 12,000 ongoing transactions initiated before the adjustment. The corresponding impact has been reflected in our Q3 revenue from second-hand housing.
4. New Housing Services: The industry is currently in a phase of reduced supply and sustained risk mitigation. The YoY decline of over 30% in sales of the top 100 developers in the third quarter is evidence of this. The GTV of new housing decreased by 26.5% YoY, outperforming the overall market. Due to a slight increase in monetization rate, the decrease in revenue of 24.3% is smaller than that of GTV. Despite the decline in revenue, the contribution rate of the new home business increased slightly YoY to 25.1%. Commission revenue from state-owned developers remained at 46%. Projects using the prepayment commission model accounted for 54% of the total commission.
5. Emerging Businesses: Excluding home transaction services, revenue from other businesses grew by 112% YoY, accounting for over 30% of total revenue, up from 15% in the same period last year. In the third quarter, net revenue from emerging and other services increased by 202.7% YoY to RMB 2.4 billion, mainly driven by the expansion of leased property management services, with a contribution rate stable at 25.3% YoY.
6. City Revenue: Shanghai achieved revenue exceeding RMB 100 million for two consecutive months, becoming the third city to achieve this milestone after Beijing and Hangzhou. Wuhan, Chengdu, Guangzhou, and other cities saw QoQ revenue growth of over 50% in the third quarter. Among the top 10 cities in terms of contract sales, 7 cities achieved positive operating profits.
7. Stock Repurchase: Over $130 million in September. As of September this year, the total number of repurchased shares accounted for approximately 3.91% of the company's total share capital. In addition, a special cash dividend of approximately $200 million was recently completed.
Q&A Session
Q1: What is the overview of the housing transaction market in the past quarter? What is the observation for the housing transaction in the fourth quarter of this year and the third quarter after the announcement of the relaxed housing loan policy? What is the impact of the policy on housing transactions?
A: Regarding the policy, since the Politburo meeting in July, some second-tier cities have relaxed or even lifted restrictions on housing transactions. At the end of August and the beginning of September, first-tier cities successively introduced policies to recognize families with mortgage records but no local property as first-time homebuyers. In addition, Guangzhou, as a first-tier city, was the first to relax its purchase restrictions in September. In addition, the mortgage interest rates for first-time and second-time homebuyers in the top 100 cities decreased by 25 and 34 basis points respectively compared to the same period last year. In the third quarter, with the support of upcoming policies and subsequent policy releases, the existing housing market has improved compared to June.
**The number of existing housing transactions in July and August increased by single digits MoM. After the relaxation of the first-time homebuyer qualification policy in September, the sales volume of existing housing on the platform increased significantly, with a MoM growth of 25% and a YoY growth of 32%. Especially in first-tier cities, the recovery actually started earlier, and the rebound in September was the largest. After the Politburo meeting at the end of July, the city has already seen some market recovery expectations. The number of property viewings and listings increased by 5% to 10% in July and August, and the transaction volume in September increased by more than 30% MoM. In September, second-tier cities with strong capabilities such as Nanjing, Hefei, Wuhan, and Hangzhou relaxed their purchase restrictions, and the transaction volume recovered strongly, with a MoM growth of 25%.
The number of new home subscriptions in August showed a slight double-digit recovery MoM. In September, the subscription volume for new homes on the Beike platform increased by more than 40% MoM and 15% YoY. This is significantly different from the historical monthly decline. Looking at the past three years, it indicates that the rebound in September this year was largely driven by some support and improvement in market sentiment, rather than seasonal factors. The transaction dates usually lag behind the subscription data by about three weeks. Therefore, it is expected that there will be more positive changes in the transaction data in October.
There is a significant gap in the new home market. In September, the new home reservation volume in first-tier cities increased by a staggering 49% YoY, while second-tier cities with strong capabilities remained relatively stable at 20%. However, other lower-tier cities experienced a negative growth of 18%. First-tier cities have a higher demand for home upgrades. The introduction of the first-time homebuyer qualification policy injected more liquidity into the new home market and provided a significant boost to first-tier cities with good fundamentals such as Guangzhou, Nanjing, and Changshan. However, when these major cities relaxed their purchase restrictions, it also led to some demand being diverted from surrounding lower-tier cities. Since the new home sales market is greatly affected by supply-side factors, there have been at least two significant fluctuations in high-frequency data, while domestic market data has shown more consistency, enabling it to better reflect overall market activity.
Looking ahead, the policy effects of the new policies will continue to manifest. The weekly MoM comparison of housing transaction dates in October is relatively stable and gradually increasing. The implementation of policies and the conversion of demand into actual sales both require time. Q2: How do you view the sales strategies of real estate developers in the upcoming peak season of the fourth quarter? What is your view on cooperation with channels? Does the narrowing gap between housing prices and land prices recently imply a positive impact on the new home business?
A: In areas with many unfinished projects, consumers tend to purchase existing properties. However, in some key cities, the proportion of consumers interested in buying new homes has increased from 33% in 2021 to 70% in September. In Chengdu, the proportion of new home purchases has risen from 25% in September 2021 to 70% this year. However, in some areas, the prices of new homes are significantly higher than those of existing properties, which has increased the pressure on developers' inventory and prompted them to offer promotional activities. This year, there has also been a significant improvement in demand for new homes in some cities. In order to respond to market changes, it is expected that most large national and local developers will truly increase their sales revenue through more promotional activities before the end of the year.
On the other hand, while benefiting from policy support, some developers have started actively promoting projects since early September, but we expect them not to rely mainly on significant price reductions. From the perspective of developers engaged in brokerage services, the penetration rate of the brokerage market into the new home market has been on the rise this year.
Our strategy will mainly cover the following aspects. First, establish new partnerships with developers. As developers shift from local autonomy to centralized management, we will work closely with them at various levels to establish deep and meaningful cooperation. Second, we will formulate our strategies and policies for each city. Third, operational management of refunds. We will start with the housing dictionary, ecosystem, standardized processes, and skills to cultivate products that customers love, and improve our infrastructure.
Q3: What is your view on the importance of mergers and acquisitions and organic growth in the growth strategy, as well as your view on future investments and their pace?
A: Generating sustainable internal innovation and organic growth is definitely a long-term goal. The emphasis on acquisitions is not only for immediate revenue or financial growth. However, the necessary scale and density are required to become fertile ground for industry innovation. Many capabilities can only grow under a certain operational scale.
In addition, the requirements for achieving rental scales of 1 billion yuan, 30 billion yuan, and 15 billion yuan vary depending on actual capabilities, and it is necessary to maintain agility and not follow the crowd to avoid losses. Looking ahead, if acquisitions can help us achieve strategic goals more effectively and quickly, then they are valuable.
Q4: How should we view the emerging home decoration industry?
A: The home decoration supply chain is long and complex. Not all stages can or should be standardized. It can be divided into three categories: standardization, personalization, and intermediation. Standardization refers to the establishment of pricing, customer practices, and simplified rule processes. Our tailored design solutions and the wide range of products we offer emphasize the personalization of the product. The degree of standardization or personalization in mature decoration falls between these two.
For areas that require standardization, it is necessary to reshape processes and establish standards. Different roles will be defined in the operational process, and a set of collaboration mechanisms, path allocation mechanisms, and checkpoint incentive mechanisms will be established. For digitalization, it is essentially a reflection of a deep understanding of the industry and a service that promotes the implementation of standardization.
Looking ahead, our focus will be on developing designers and delivering middle-tier modules to standardize workflows and achieve a what-you-see-is-what-you-get design approach. Finally, we would like to reiterate that the core goal of standardization and systematization is to establish a customer-centric digital infrastructure that supports the sustainable development of the industry.
